When the Home Affordable Refinance Program (HARP) was initiated back in 2009, the goal was to stimulate the economy and reduce defaults by lowering mortgage payments in households with high LTV mortgages, i.e. those who are/were "underwater". These were borrowers who were otherwise unable to refinance because of the LTV ratio.

Refinancing activity was much lower than expected when HARP began, and these less than desireable results have served to remind us about impediments to refinancing...credit risk fees, limited lender capacity, a revamped and difficult (not to mention highly conservative valuations) appraisal process, the inherent risk for lenders etc. etc.

Then the concerns about revising HARP included doubts about its fairness efficiency, and it was of course recently revised. One outcome of a potentially improved program would be that more borrowers would be in position to refinance. The impact of refinancing on future default risk is important to the current debate of the GSE (Gov't Sponsored Enterprise) fee structure for HARP loans, and results suggest that refinancing can be employed as a tool for loss mitigation by investors and lenders. The optimal refinance fee will be lower if this reduction in credit losses is recognized. A reduction in fees will increase incentives to refinance but at the cost of fee income to the GSEs, the offset to this lower fee income today is lower credit losses in the future...hopefully.

The HARP program has helped some people, of that there is no doubt, but the vast majority of the folks who need assistance are excluded in some way and it is still quite difficult for the average borrower in need of HARP assistance to get refinanced. HARP 3 anyone?